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Market Watch Weekly - February 14 2014

Erik Dekker - Feb 14, 2014
This week we saw the Federal Government deliver its 2014 budget.

This week we saw the Federal Government deliver its 2014 budget. Finance Minister Jim Flaherty announced that the 2014 federal budget will stay the course in an effort to achieve a balanced budget by 2015 – 2016. We have received a variety of commentary and have paraphrased some of the key points as outlined by our friends at Fidelity, Trimark, as well as Crowne Mackay among others.

The budget projects a surplus of just over $6 billion in 2015 – 2016, higher than the previous $3.7 billion that was forecast in the November Fiscal update. The federal debt to GDP ratio, which is a key ratio of our nation’s fiscal health is projected to decline to approximately 27%; this is below the pre-recession levels we saw in 2008 and 2009. The projected deficit reduction and debt trends continue to place Canada at the forefront of fiscal prudence among developed countries.

With the continued political and global economic uncertainty, Canada’s fiscal policy directed towards stability and prudence helps insulate us against those potential external shocks, while providing a more predictable economic environment that attracts foreign investment and supports investor confidence in the Canadian capital markets.

While there were no major tax announcements in this budget, there were a number of proposals put forth to enhance the fairness, integrity and neutrality of the tax system:

Elimination of graduated rate taxation of trusts and estates – The use of graduated rates on trusts created by will (and certain grandfathered inter-vivos trusts) is eliminated to prevent the multiple uses of graduated rates.
Non-resident trusts – Until now, new residents to Canada were able to benefit from the use of non-resident trusts to shelter income for us to 60 months. New rules eliminate this exemption.
Foreign Account Tax Compliance Act – An intergovernmental agreement was signed on February 5, 2014, and this budget provides an update on the exchange of tax information between Canada and the U.S.
Business income tax – included changes to the remittance thresholds for payroll deduction and proposed changes to the treatment of eligible capital property that will result in the cessation of some current tax planning that benefit from the low corporate tax rate and the 50% taxation of goodwill sales.

Another one of the central themes in the budget was the need for fair treatment of consumers. Finance Minister Flaherty recounted the Government’s past efforts and expressed its continuing intention to address consumer concerns:

Cell phone charges – proposals to strengthen competition, including legislation to reduce wholesale roaming rates.
Internet access – Improved access to broadband in rural and northern communities.
Cross-border price discrimination – introduced legislation to address price discrimination beyond what is justified by higher operating costs in Canada.
Pay-to-pay – Prohibited the banks’ practice of charging fees to credit card clients who wish to receive their monthly statements in a printed format.
Banking powers of attorney – enhanced disclosure by banks on the costs and benefits of using powers of attorney or joint accounts, particular where seniors are concerned.

We would encourage clients to seek the advice of their tax accountant to better understand how these tax announcements affect them. Should you not have a tax advisor we would be happy to make a referral.

Well, we are one week into the 24th Olympiad in Sochi Russia, and beside the fact that most of the athletes will probabaly return home with a better tan than when they left, it has been a pretty good event thus far.

Canada has tallied 10 medals so far with several other top ten finishes. While the television viewing has been a little challenging to get used to the timing difference and what is on what channel, all in all it has been exciting to watch. 

Today is Valentine’s Day, so whatever your tradition, be that dinner at your favourite restaurant or just picking up some flowers on the way home, don’t forget as that tends to put a damper on the mood for the evening.   

Thank you for your trust.

As always, we welcome any feedback.

The Dekker Hewett Group